Image Source: Business Insider
Last month, prices in the United States grew faster than projected, pushing inflation to its highest level since 1981, thanks to rising energy and food expenses. After easing in April, the annual inflation rate increased to 8.6% in May, according to the Labor Department.
Households are feeling the pinch as the cost of living rises, putting pressure on policymakers to address the problem. Since March, the Federal Reserve of the United States has raised interest rates.
Analysts had hoped that the measures would begin to dampen economic activity and relieve price pressures. However, the conflict between Russia and Ukraine has exacerbated the problem by driving up the price of oil and other commodities such as wheat by disrupting exports between the two countries.
Compared to May 2021, food costs increased by more than 10%, while energy prices increased by more than 34%. However, according to Friday’s research, the price rises are spreading throughout the economy, driving up the cost of everything from plane tickets to apparel to medical services.
Since last year, when an unexpectedly robust economic recovery from the pandemic’s shock – fueled by massive amounts of US government expenditure, including direct checks to people – swamped supplies, causing corporations to boost prices, the US has been battling with rising prices.
The conflict in Ukraine has now pushed the problem around the world, with Covid-related shutdowns in China this spring helping to spread the problem.
Officials are warning that GDP in many nations is at risk of a dramatic decline as growing expenses hurt family purchasing power and force a reduction in spending.
Following the inflation reports, US stock markets plunged by more than 2%, with all three major indices falling by more than 2%. The drops followed weeks of stock market dips as investors were increasingly concerned about the economy’s direction.
For the time being, the US labor market continues to add employment, indicating that the economy is still growing. However, as prices rise, salaries have not kept up. In addition, the rising cost of living has disproportionately impacted lower-income households since basic necessities such as food and electricity account for a significant amount of spending.
According to polls, the majority of Americans consider inflation to be the country’s most serious issue. However, as Republicans criticize US President Joe Biden over the issue, consumer confidence has plummeted, and his approval ratings have plummeted.
Prices rose 1% month over month, owing to the growing cost of gasoline, which has reached new highs in the United States, nearing $5 per gallon on average.
US Treasury Secretary Janet Yellen said lowering prices was her “number one objective” during hearings in Washington this week.
As America’s central bank, the Federal Reserve, raises interest rates, Roberto Perli, head of global policy research at Piper Sandler, predicts that prices will come under control. However, he cautioned that increasing borrowing costs would stifle economic growth.